U.S. Government Warns Apple and Publishers of Antitrust Lawsuit over e-Book Pricing

[econgeek]

I'm lost as to what Apple and the book publishers have done wrong - the publishers set the price and Apple takes a cut. Surely the publishers have the right to set the price they want for their products?

I think you're making the "mistake" of thinking about this logically.

Amazon gives a lot of money to democrats. The democrats are in power.

Apple competes with Amazon by undermining Amazon's monopoly on ebook publishing, and starts offering ebooks cheaper than Amazon was. So, Amazon calls their friends in washington-- Boom, Antitrust!

Antitrust is always used as a tool by one group to attack another group that is beating them in the free market.

IF you can't win in the marketplace, get government to use violence against your competitors.

 

[GrayApple]

Apple does need to be careful but not so much with the regulators. Microsoft's antitrust wounds were self-inflicted. The final settlement of the case (in the U.S. at least) was very favorable to the company; they had to change very few practices and give back nothing they'd gained illegally. Microsoft's strategic blunder in dealing with the DoJ was to believe that they could beat the rap. The moment they allowed the case to go to a Finding of Fact, they'd lost, big. Those findings laid out in detail how Microsoft had abused their market power. They were used by a whole string of companies in private litigation, costing Microsoft billions in settlements, and infinitely in terms of reputation.

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That logic cuts no mustard under the antitrust laws. Apple and the publishers might argue that the relevant market is for "books" generically, but the government it appears is looking at ebooks as a separate market. I think they are different enough that the government has a strong point to make here.

Perhaps you're correct. I still believe that if you have a choice in vendor, the government shouldn't dictate what a company prices. But since collusion is involved, it ultimately boils down to are eBooks just another form of books, or their own separate market(as you said). I consider them one market, but I guess it would set an ugly precedent for other anti-trust cases to follow in the future.

 

[econgeek]

And? If someone wants to sell something at a loss, it's their perogative.

So, isn't it also someone's prerogative if they don't want to do business with someone who trashes their brand by offering things for $0.99?

Apple's "crime" is providing an alternative marketplace to Amazon's monopoly, and letting the publishers set the prices, so long as the price was always the lowest price they offered the book at anywhere else.

So, obviously that must be punished!

 

[aristokrat]

Sorry, but I think you are trying to excuse the inexcusable. I have four eBooks published in the Amazon Kindle store and except for my own work and the Scrivener license, there were no costs involved.

In the past I also had printed works published and know the involved price difference.

Amazon revolutionized the publishing business -- they made it possible for all authors to get their work published on a global scale at almost zero cost. WITHOUT NEEDING TO GO THROUGH A PUBLISHING HOUSE.

So please pardon me when I call ******** on the argument that eBooks can even cost more than a printed version. I also say that it's ******** when somebody wants to make you believe that publishing an mp3 file costs more than publishing a CD, or that publishing an mp4 file costs more than shipping BluRay discs. It's like saying that the delivery of an eMail costs more than sending a hand-written letter. It's pure nonsense, plain and simple.

The truth is that publishing houses, record labels and disk manufacturers are quickly becoming obsolete and desperately try to uphold their no longer needed business models and services.

All publishing houses do play a role that you are overlooking. It's called A&R in the music business, probably something similar in the book business, but it's the process of spending time finding new talent and then helping it reach its target audience. While YOU may think you are willing to spend the time discovering content in a publisher-free world, most people aren't, and you have no idea what it would truly be like. If everyone self-published everything, you'd have to sort through so much crap in order to find anything good. That's why textbooks are published through major corporations, because universities don't want to waste time/money on sorting through every kook who's made a new textbook; instead, they go to McGraw-Hill and ask what they've got, they go to Pearson and ask what they've got, etc., and they can be reasonably assured they won't be wasting resources on crap.

Publishing houses are what impels some content to be made: artists can get an advance on a work before they make it, instead of having to do all the work upfront. More complicated pieces like textbooks (again) might not be made by reasonable people who would look at the risk of the time spent versus the possible reward and just say no, as opposed to now being able to get an advance on their work and know it will be worth their while.

Publishing houses are certainly losing some of their power in the electronic age, but everyone is still defining themselves with respect to the major powers because they still do most of the work. Without the publishing houses and the pipelines they've set up, indies and other types would not have anything to feed off of. That, or consumers would start paying in some other form for quality filtering.

 

[econgeek]

But since collusion is involved, it ultimately boils down to are eBooks just another form of books, or their own separate market(as you said).

How is offering people a better deal (aka Competition) getting called "collusion"?

Its "collusion" because most of the major publishers agreed to keep their prices low? (that's the only "price fixing" here-- they agreed to not sell on iBookstore for more than they sell elsewhere. How does that harm consumers?)

This whole thing is nonsense, top to bottom.

 

[sw1tcher]

That's not "Fixing prices". Fixing prices is when you try to keep prices high.

The part you bolded was Apple making sure their price was the lowest possible.

Read what I highlighted again.

Apple also specified that publishers could not let rival retailers sell the same book at a lower price.

How is that not price fixing? Apple sells a certain eBook for $14.99. Another retailer wants to sell that very same eBook for $9.99, but they can't since Apple "specified that publishers could not let rival retailers sell the same book at a lower price."

The sad thing is, Apple did the right thing here, and created competition.

Where's the competition when everyone is selling the same thing for the same price? There's no competition if I can't sell an eBook for less than what Apple is selling it for or what the publishers will allow because of what Apple specified.

 

[aristokrat]

But it's not a free market when AAPL and the publishers collude to fix prices.

You missed the point of what you bolded. Apple introduced the agency model to publishers and could reasonably expect it to proliferate given it's benefits to publishers. Assuming that they then switch other stores over to agency models as well (where the publishers are setting prices), they actually wanted competitive pricing, meaning the same price in all stores, because otherwise the publishers would be determining who wins and loses by dictating favorable prices in one place and unfavorable ones in another.

 

[sw1tcher]

Apple's "crime" is providing an alternative marketplace to Amazon's monopoly, and letting the publishers set the prices....

And it's not a monopoly when publishers can prevent someone from pricing their product at whatever price they want? The publishers are still getting paid regardless of what Amazon prices them at.... even if Amazon gave the eBooks away for free.

 

[asrai]

Um, NO, the U.S. Government needs to keep its power hungry bureaucratic hands out of the free market.

 

[GrayApple]

How is offering people a better deal (aka Competition) getting called "collusion"?

Its "collusion" because most of the major publishers agreed to keep their prices low? (that's the only "price fixing" here-- they agreed to not sell on iBookstore for more than they sell elsewhere. How does that harm consumers?)

This whole thing is nonsense, top to bottom.

I'm not saying collusion is involved. I've read the article, but not the exact agreement publishers signed with Apple. It reads to me like Apple set the agreement only to get the best pricing, but supposedly other retailers did similar things making the way publishers price things difficult, which may have led to some strange form of collusion that may have affected pricing. I'm not sure what to think of this so far, but I still believe this could simply a trumped up charge by the DOJ.

 

[econgeek]

How is that not price fixing? Apple sells a certain eBook for $14.99. Another retailer wants to sell that very same eBook for $9.99, but they can't since Apple "specified that publishers could not let rival retailers sell the same book at a lower price."

You seem to be operating under a fundamental misunderstanding of the situation.

Apple doesn't sell the book at $15. The publisher sets the price. Apple's requirement is that if the publisher sets the price at $10 elsewhere, they have to set it at $10 on the iBookstore as well.

This is not price fixing, which is a term used to describe collusion to keep prices high. This is a requirement that a given price be the lowest, always. This results in lower prices.

Where's the competition when everyone is selling the same thing for the same price?

So, now you want prices to be higher on some stores? You think there's no difference between the shopping experience of Amazon and Apple? The kindle and the iPad?

There's no competition if I can't sell an eBook for less than what Apple is selling it for or what the publishers will allow because of what Apple specified.

That's not an issue of competition, that's an issue of rights. The publishers have the rights and thus the right to set prices.

And it's not a monopoly when publishers can prevent someone from pricing their product at whatever price they want?

No, that's called rights. Has nothing to do with monopoly. Monopoly is when you own the whole market. Amazon owned the whole market before Apple started competing, and Amazon was able to dictate that they could set prices below market to benefit Amazon, and the publishers were forced to take it because Amazon had a monopoly.

Apple introduced competition-- the opposite of a monopoly- and offered the publishers a fair deal.

How is this bad? As a result, prices are lower.

The publishers are still getting paid regardless of what Amazon prices them at.... even if Amazon gave the eBooks away for free.

Nope. Amazon's terms were such that Amazon keeps %60 of the price, and amazon gets to set the price. Since then, Amazon has been forced to offer more equitable terms, but at the time, Amazon was taking over %50 of the income!

The result of this is that prices across the board were much higher to compensate for Amazons "sales" that benefited Amazon and helped to sell kindles. Now that there's competition, ebook prices are lower overall.



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I'm not sure what to think of this so far, but I still believe this could simply a trumped up charge by the DOJ.

I'm certain it is. Apple introduced competition to a market that was a monopoly. Apple has lowered prices across the board as a result. And this is "anti-competitive" and "bad for consumers"?

 

[eric/]

they're going to get slammed on this. Especially with as much money as they have, the government is going to show no mercy.

And I'm ok with that. You can't sell it cheaper anywhere else because we want our 30% cut? get the hell out of here.

 

[GrayApple]

But it's not a free market when AAPL and the publishers collude to fix prices.

The way I read this whole thing makes it sound more like Apple didn't want publishers undercutting their pricing on other platforms, not that they were attempting to raise the prices of eBooks. I believe apple INTENDED it to lead to them having the lowest prices, but it probably had the UNINTENDED consequences of making prices more unified and thus making competitive pricing near impossible unless publishers abandoned Apple's iBooks and any other eBook distributor that enforced similar rules.

 

[stockscalper]

I think you're making the "mistake" of thinking about this logically.

Amazon gives a lot of money to democrats. The democrats are in power.

Apple competes with Amazon by undermining Amazon's monopoly on ebook publishing, and starts offering ebooks cheaper than Amazon was. So, Amazon calls their friends in washington-- Boom, Antitrust!

Antitrust is always used as a tool by one group to attack another group that is beating them in the free market.

IF you can't win in the marketplace, get government to use violence against your competitors.

This has nothing to do with Democrats or Republicans. It has to do with publishers getting together and setting prices for books and not letting book sellers, like Amazon, discount or deviate from the price they set. That's called price fixing and it's been illegal in this country for over 100 years. It's not a free market when companies collude to fix prices.

 

[ElCidRo]

Would you say that if you were an author who slaved for months on each book and depended on book royalties to pay the rent?

Or if someone were an author thinking about writing a book you would very much want to read, would they have enough incentive to spend the time to write it at a lower price point? Versus switching to some other career?

And the publishers are probably in a very good position to know where the peak revenue price point occurs. Better information than you have. Face it, you might just be too poor to be the most profitable market segment for ebook publishers to target.

Should I be offended if I were poor? Seriously, what's wrong with today's world?
And please spare me the "poor authors" point of view.

 

[IJ Reilly]

That's not what this is about. It's about multiple players in the industry colluding to "fix" prices. It's not about Apple per se. It's that in the agency pricing model, Apple agrees in advance to charge what the publisher wants. However, where I do agree with you that it's ridiculous for the government to get involved (see my other post) is that the Supreme Court ruled a few years ago that manufacturers can set minimum selling prices. While that's not quite the same thing, since it's rare for a retailer to charge more than list, for all practical purposes it's the same thing.

The court ruled that retail price maintenance schemes such as minimum advertised prices did not inherently violate the antitrust laws against price fixing, but far from said that they were always legal. Whether they are found to be legal or not is going to depend on how they are used. In this instance it appears that Apple is requiring publishers to not sell their products to anyone for less than they charge Apple. I don't see how this is protected by the court's decision on MAPs, if only because Apple is establishing a minimum price for a product made by others. Seems like shaky ground to me.

 

[holyv]

I think you're making the "mistake" of thinking about this logically.

Amazon gives a lot of money to democrats. The democrats are in power.

Apple competes with Amazon by undermining Amazon's monopoly on ebook publishing, and starts offering ebooks cheaper than Amazon was. So, Amazon calls their friends in washington-- Boom, Antitrust!

Antitrust is always used as a tool by one group to attack another group that is beating them in the free market.

IF you can't win in the marketplace, get government to use violence against your competitors.

In 2004 - 2008 election cycle, 92% of campaign contributions from Apple went to democrats. On the other hand, 63% of campaign contributions from Amazon went to democrats.

All disclosure websites would point that the entire tech industry is very left leaning.

Next conspiracy theory please.

 

[Daveoc64]

Amazon gives a lot of money to democrats. The democrats are in power.

Explain why there are several similar investigations going on in countries with more "conservative" governments in power?

It's simple. The Agency Model is probably illegal in most countries.

 

[IJ Reilly]

Perhaps you're correct. I still believe that if you have a choice in vendor, the government shouldn't dictate what a company prices. But since collusion is involved, it ultimately boils down to are eBooks just another form of books, or their own separate market(as you said). I consider them one market, but I guess it would set an ugly precedent for other anti-trust cases to follow in the future.

The government will not dictate pricing. What they may require is that Apple cease demanding that publishers adhere to their pricing to Apple with all potential retailers as a condition of doing business with Apple. A retailer with less throw weight could never demand terms such as these, so when a giant like Apple demands pricing terms of this kind, it naturally raises eyebrows.

 

[gwangung]

Please provide facts to backup your claims. Numerous, now independent, authors have listed item by item the costs you say are so much and found that they can sell books profitably at ~$3 (or less) inclusive of hiring editors, layout experts, and writing. Google it and you'll find these write ups easily.

Ok, so if you're right that it's so inexpensive to distribute, why are ebooks not the same price or at least a bit less expensive than traditional books? There have to be SOME savings with ebooks over paper books.

Talk to John Scalzi and Cory Doctorow. That's where I got the information in the first place.

And, by the way, these are authors who BEGAN by self-publishing e-books. And they're authors who use free releases of ebooks as part of their strategy. They are now much more comfortable and profitable by selling through the big publishers.

(And remember...we're talking about costs TO THE PUBLISHERS, not costs to authors).

I'll take their word over yours, particularly when they document the costs involved (procurement is a BIG cost which you're ignoring. Marketing is a BIG cost which you're ignoring).

 

[Gasu E.]

As I posted above in this thread....

Here is an author's description of publishing costs vs. ebook (self-publishing). He lists the costs of all the parts of creating a book.

http://www.huffingtonpost.com/ja-kon..._b_764516.html

So according to this author, if he sells 6,000 copies (3 times the average lifetime units for a non-self published book), he will make just over $3,000. Wow.

 

[canucksfan88]

Sounds feasible to me, I know for a fact when I check e-book vs hardcopy prices I've found e-books to be much more expensive on numerous occasions. This doesn't make sense from a printing and delivery standpoint, and makes me believe these companies are trying to take advantage of the hype and popularity behind ebooks as a new technology. I hope they come down hard on Apple and Publishers if it's true, ripping off customers should not be a business model for any company. No sympathy for greed.

Sounds feasible to me, I know for a fact when I check Mac vs WinTel prices I've found Macs to be much more expensive on numerous occasions. This doesn't make sense from a hardware and component standpoint, and makes me believe this company are trying to take advantage of the hype and popularity behind their brand as a new technology. I hope they come down hard on Apple if it's true, ripping off customers should not be a business model for any company. No sympathy for greed.

maybe its just apple =p

 

[samcraig]

If making money was a crime, Apple would be Public Enemy #1. Some people here condemn the publishing industry for being greedy. Newsflash - they are far more in need of ways to profit than Apple is currently. I'm not advocating the publishing industry "overcharging" (which I really don't believe they are for eBooks for the most part given how convenient they are vs going to a store). What I am saying is - it's hypocritical to blast the publishing industry for charging what they want for their media and praise Apple for making killer profits on their devices.

 

[Gasu E.]

I think you're making the "mistake" of thinking about this logically.

Amazon gives a lot of money to democrats. The democrats are in power.

Apple competes with Amazon by undermining Amazon's monopoly on ebook publishing, and starts offering ebooks cheaper than Amazon was. So, Amazon calls their friends in washington-- Boom, Antitrust!

Antitrust is always used as a tool by one group to attack another group that is beating them in the free market.

IF you can't win in the marketplace, get government to use violence against your competitors.

http://www.opensecrets.org/pacs/lookup2.php?strID=C00360354

Amazon doesn't give all that much to politicians, either Democrats or Republicans; and what they do give isn't particularly biased towards Democrats.

 

[saturn88]

thanks....it still doesn't answer the question....how does anyone survive (in his own estimate) at $0.51/copy when you are selling only 2000-3000 copies.

Most don't make money on ebooks, but use them as increased marketing presence.